Senate Plan to Repeal Inheritance Tax Fails

The Senate rejected a plan yesterday to permanently repeal the federal tax on inherited estates, but lawmakers continued to negotiate behind the scenes to try to find a compromise that would reduce the levy significantly.

Voting 57 to 41, the Senate fell three votes short of the 60 needed to cut off debate and move to consider a Republican proposal that would have eliminated the estate tax. The levy is currently phasing out and will vanish in 2010, only to spring back to life in 2011.

"The 'death tax' is an unfair burden inflicted upon America's small businesses, farmers, and families during a time of grieving and pain," said Senate Majority Leader Bill Frist (R-Tenn.), a leading proponent of repeal. "This won't be the last time this year the Senate votes on this important issue."

Frist and other leading Republicans argued that the estate tax forced closely held and privately owned businesses to sell out to public corporations, depriving family members of the benefits derived from the hard work of their elder relatives. As a result, they said, rich people wasted billions of dollars trying to avoid the tax, money that might better have been used to expand the businesses and create jobs.

Democratic leaders portrayed repeal as a sop to the wealthy few that should not have even been debated at all, given other pressing priorities such as rising gasoline prices and the large number of citizens who do not have health insurance. Democrats also contended that the cost of repeal is more than the country can afford in light of already large federal budget deficits.

"This country is bleeding red ink," said Senate Minority Leader Harry M. Reid (D-Nev.). Ending the estate tax now, he added, "is an absolute farce." Voinovich, who previously supported the elimination of the estate tax, switched sides yesterday out of concern for the rising deficit.

According to the staff of the congressional Joint Committee on Taxation, repealing the estate tax would cost the government $71.6 billion a year by 2015. The Treasury Department estimated the revenue loss at $65.8 billion that year.

The Senate vote yesterday takes permanent repeal of the estate tax off the table this year, lawmakers agreed. But senators continued to hunt for a way to protect most small-business owners from the tax. If a consensus proposal is devised, Frist has promised a quick vote on it.

A compromise floated this week by Sen. Jon Kyl (R-Ariz.) would have exempted from the tax as much as $5 million of a person's estate. Estates worth as much as $30 million would face a 15 percent tax rate, and those above that level that would be taxed at 30 percent.

The estate tax's gradual disappearance -- and reappearance -- was mandated as part of Bush's 2001 tax cut plan. Congress decided to make the repeal temporary as a way to save revenue. After phasing out in 2010, the estate tax will return in 2011 with a $1 million exemption and a levy with a tax rate of as much as 55 percent on estates of larger size.

Not many people are forced to pay the estate tax. According to the Internal Revenue Service, only 1.17 percent of people who died in 2002 left a taxable estate.

The House, acting at the urging of President Bush, has already voted overwhelmingly to permanently repeal the estate tax. But the Senate has not been able to match that effort. In 2002, for instance, the Senate came up six votes short of approving a repeal measure.